IEX’ DAM volume grew 19% in 9M on higher demand by discoms (80% share).
Interaction with management suggests shortfall in transaction revenue due to lower RECs would be partly offset by withdrawal of incentives on REC by IEX (link) — with effective transaction margin now at Rs 20/REC on both purchase & sale (vs. Rs 16/REC charged by only seller). We expect Q3 to remain flat on lower base of RECs, ESCerts^ (8% vs. 36% YoY); however, IEX’ 9Mperformance to remain healthy with14% rise in topline (Rs 2 bn), EBITDA margin of 82% and 22% rise in PAT (Rs 1.2 bn); reiterate BUY.
IEX’ DAM volume grew 19% in 9M on higher demand by discoms (80% share). With rising variation in base and peak, discoms are sourcing peak load from short term market (to save on capacity charges during off-peak) and base load from PPAs– to boost ST market; IEX to be key beneficiary. During April-Oct’18, while total generation rose 5% YoY, ST volume grew 19% with share of ST rising to 12.4% (vs. 11% YoY). Within ST, exchanges dominated with 39% share (37% YoY), traders at 33% (vs. 30% YoY) while deviation market share declined from 20% to 16%.
Linking DSM price to exchange price under new amendment to gradually shift 50% of DSM vol. (due to non-technical errors) to exchanges as discoms will no longer have the benefit of lower pricing in DSM — this would drive 25% higher volume on exchanges. While Q3 to remain flat owing to high base effect, we expect 9M performance to remain healthy with 14%/22% rise in topline/PAT respectively; maintain BUY with TP of Rs 198.
During April-Oct’18, ST market grew 19% YoY vs. total generation/long-term market growth of 5%/3% with share of ST rising to 12.5%. We expect ST share to rise to 14% by FY22 led by structural shifts such as discoms sourcing peak load from spot, strong growth in renewables, improvement in transmission etc — IEX to be key beneficiary of the changing landscape of ST trade. Discoms constitute 80% of IEX’ volume. Revival of industrial demand coupled with rural, household electrification will further drive power demand — peak demand grew 9% in YTDFY19.